[Practical Investment] Lost Money, Fractional Investment in Real Estate, Music, and Artworks

In the Era of High Interest Rates, Traditional Investment Assets in Recession... Token Securities (STO) Emerging as Alternative Investment
Issued Based on Real Assets with High Investment Value
STO-Related Stocks Surge in Sideways Stock Market

This year was marked not only by economic indicators such as interest rates and inflation but also by prolonged unexpected international conflicts throughout the year, highlighting external uncertainties. Additionally, with the upcoming U.S. presidential election season next year, policy uncertainties are also increasing. While there is a market consensus that interest rate hikes are nearing their end, this does not mean that the timing for interest rate cuts is yet within sight.

The usual year-end 'Santa Rally' was also overshadowed by the specter of economic recession and disappeared. In this situation, the securities industry is focusing on token securities (ST) as an alternative investment destination for idle liquidity. With legislation expected next year, stocks related to Security Token Offering (STO) are already soaring in the stock market, reflecting growing expectations for this new market.

ST refers to securities digitized under the Capital Markets Act based on distributed ledger technology. Unlike virtual assets commonly called 'coins,' ST is fundamentally based on tangible underlying assets such as real estate and artworks. The ST ecosystem is broadly composed of underlying assets, ST issuers, and ST distribution platforms. Just as existing securities firms select promising companies for stock market listing, issuers discover underlying assets with high investment value and issue ST based on them, creating a new market for issuance and trading. Unlike the traditional stock market where only securities listed on the Korea Exchange could be traded, ST can be listed and ordered through various trading platforms.

ST began in earnest in 2020. At that time, fractional investment platforms emerged that divided and sold real estate, music copyrights, and artworks, attracting attention as a new financial tool for general investors. However, as the market gradually expanded, financial authorities began reviewing legality to protect investors. Although the business was once at risk of suspension, the authorities recognized the securities nature of fractional investments and actively pursued related legislative amendments, leading to the rise of the 'innovative financial market' as a new growth area in the investment industry. It is expected that once legislation is finalized and incorporated into the regulatory framework by next year at the latest, full-scale industrial activation will occur.

One reason STO is gaining attention as an alternative investment at this point is that traditional investment assets such as stocks and real estate are experiencing downturns amid prolonged high interest rates. Choi Jae-ho, a researcher at Hana Securities, explained, "In a phase where uncertain domestic and international conditions and inflation persist, token securities may emerge as an alternative investment. Since token securities represent rights to tangible assets, investors are likely to perceive them as the physical assets themselves, making them assets capable of responding to inflationary environments." He added, "The token securities industry, which combines the advantages of tangible assets with the decentralization and liquidity strengths of virtual assets, is expected to change the paradigm of the investment environment."

Reflecting such expectations, STO-related stocks have been surging even as the overall stock market remains in a sideways box range. According to the Korea Exchange, K-Auction, an art auction company classified as an STO-related stock, saw its stock price soar 85.26% over the past month (based on closing prices from November 10 to December 11). During the same period, Galaxy Money Tree, a blockchain specialist company pushing for STO issuance, rose 82.69%, and Galaxy SM, which holds a majority stake in Galaxy Money Tree, surged 70.60%. Other stocks such as ITCEN (67.86%), Finger (57.99%), and Seoul Auction (52.30%) also experienced simultaneous gains. These increases far exceed the KOSPI's 4.05% rise during the same period, demonstrating investors' strong interest in the STO market.

However, the legalization of token securities requires the passage of amendments to the Capital Markets Act (establishing over-the-counter trading intermediaries) and the Electronic Securities Act (recognizing the legal effect of distributed ledgers, establishing issuer account management institutions, etc.), which were proposed in July and are currently under review in the National Assembly. Although the exact timing may vary depending on the National Assembly's situation, the industry expects legislation to be finalized within next year. Lee Sang-heon, a researcher at Hi Investment & Securities, forecasted, "Even before the legalization of token securities is completed, new businesses will be created through the designation of innovative financial services and approval of investment contract securities issuance, accelerating growth as the related market expands."

Recently, fractional investment companies such as Yeolmae Company, Together Art, and Seoul Auction Blue have declared their entry into fractional investment platforms and submitted securities registration statements. If approved by authorities, full-scale fractional investment services based on artworks as underlying assets will be implemented. Since the STO on-exchange market is expected to be approved as a regulatory sandbox within the year, the outlook is positive. Lee Kyung-ja, a researcher at Samsung Securities, said, "At the beginning of the year, financial authorities required platforms conducting fractional investment businesses under the Electronic Commerce Act to meet all conditions for public offerings, and platforms that met these standards are now actively pursuing STO businesses. This signals that token securities are being recognized as investment contract securities and that STO is beginning to be incorporated into the regulatory framework."

This content was produced with the assistance of AI translation services.